Zara's Customer-Centric Business Model

Introduction

This essay centres Zara Corporation, which is a globalised fashion and design industry as a case study to unravel different logistics embedded business organisational functions. In the modern dispensation, businesses have embraced various dynamics to suit in the spheres of the competitive environment under which they thrive (Costa, 2017). Additionally, the continuous conception of new technology in the world of business has motivated a need for periodic review of company processes; and integrates such technologies to maximise on profits. Business processes are thus not static, but continuously prone to changes over time. This is owed to the premise that the spinning wheel of time carries with it new human needs a new production means which ought to be incorporated with industrial production processes. Zara Company is the case study by which the concept of organisational leadership, business models, and functions are chanted and presented forth, in this work.

Zara is a fashion corporation offering footwear, clothing, and accessories for women, men and children from new-borns to adults of about 45 years of age. Established in the year 1963 by Amancio Ortega and his wife Rosalia Mera; Inditex is currently the second largest fashion and designs retailer in the world (Jaouhari, and Wu, 2013). This essay utilises Zara as case study for its strategies and their capacity to thrive and continually triumph over the competitive fashion industry; something which this presentation finds quite fascinating. The company’s abilities thus invoke a need to study and analyse her supply chains, store management, employees’ management, and communication and marketing strategies

Initially, the company initiated a distribution mechanism able to respond to the market dynamics at a fast rate and indeed focussed on the customers’ needs while working towards satisfying their desires. Since they concentrated primarily on their customers' constraints, the company formulated a framework which catered for various stages of fashion value chain including; manufacturing, design, sake and distribution (Kumar, and Kim, 2014).

By the year 2015, the company had 7000 stores in 91 global markets, 29 online markets and toward the end of the year; the company had yielded more 100 billion dollars; making it the most valuable company in Spain (Crofton, and Dopico, 2012).

In the year 2016, the Intex Group created 9,586 job opportunities while increasing the global headcount from 152, 855 to 162,451.

The company created opportunities for trained personnel in the areas of ore design, engineering, creativity, sales and the logistic regions to help in the company’s quest for expansion globally. Consequently, the workforce in the host country, Spain increased to 48,590 people by the end of 2016, which was an extra of 9500 jobs in the previous five years. The following graph demonstrates the position of Zara alongside hr major competitors in sales for the period shown (Uriarte 2016);

The Inditex administration over time has demonstrated the ability to cope with the changes happening on the market while adopting the customers’ preferences and needs. By so doing, the company did find rationales in adopting various brands suitable to the general demographic demands. Each brand according to Burt (2000), is said to have a bad and separate image and offering, but yet founded on a similar business model which always take cognisance of customers’ needs. Zara which was founded in the year 1975 is the main brand for Inditex Company and has continually sought to fulfil the customers’ needs while following the newest market trends. The brand is tirelessly seeking to satisfy customers of all age and culture. Other brands such as Pull and Bear, Bershka, Stradivarius, Massimo Dutti, Oyasho, Uterque Zara Home and Lefties were developed later; and indeed have contributed in uplifting the taste of production diversity (Erdil, 2015). The following pie chat demonstrated the percentage representation of total sales Zara brands made in the year 2015;

Internationalisation of Inditex Corporation

The company drew motivation for internationalisation from the need to seek more market opportunities from home where they were limited. The advent of technology in communication and the need to trade along international corridors equally contributed to the expansion of the company. According to Lopez (2008), Inditex launched its first store Zara in the year 1975 in La Coruna and by 1980s, the enterprise focussed for expansion beyond Spain, where the fashion market opportunities were not only saturated but also limited. Globalisation began with the opening of a sore in Portugal, and later to New York, Paris and Milan where the company reflected on building awareness while inclining towards the existing market trends (Grier et al., 2007). The following graph shows the number of Zara stores globally in the year 2015;

The globalisation as inspired by information technology has also enabled the identification of market opportunities for expansion. Besides, the political systems in countries which stimulate foreign investment have all laid the foundations for thriving conditions not only Inditex but also any other globalised Corporation. Zara’s stores are strategically positioned along major streets and shopping centres. Through their flagship store (Zara) the company management can acquire information concerning market dynamics and expertise relevant (Carpenter, and Moore, 2006).

Communication and Marketing Strategies for Zara

Unlike most competitors, Zara spends only 0.3% of her revenue on advertising. Their marketing strategy is built on the threshold of investments on everything within the stores, and opening up new stores along strategic areas. The company harnesses local newspapers and fashion magazines to create awareness about expansion to new areas. “We do not publish photographs of our clothes in magazines because, by the time the ads are out, the clothes you see will no longer be in the stores.” Amancio Ortega, CEO of Inditex.

Additionally, the company do not utilise the press in promotional rationales but instead make in-store promotion and point-to-sale promotions. As a strategy, the company’s stores are built with large windows, which induces passers-by the ability to spot the inside brands. Inside the stalls, the decorations in white and clean finishing are appealing to the eye, arousing customers a sense of motivation to shop.

Fast Fashion Business Model

According to Simona (2005), “The fast fashion business model involved stocking inexpensive fashion-forward items in limited quantities that would encourage frequent store visits and purchases. These retailers are fashion-orientated, spotting trends and copying new designs from fashion shows, so then they can produce them quickly in their retail outlets.” In the contemporary constructs, retailers have shifted the fashion docket with the adoption of modern strategy (Fast Fashion) whereby they bring affordable and rending products to the market limelight. Fast Fashion strategy intends to inspire the adoption of incoming trends swiftly by retailers (Sull and Turconi, 2008).

Fast Fashion retailers have overtaken the medieval designer-push model with an opportunity-pull model where retailers get to react to changes in the market at a relatively rapid rate. The growth of fast fashion retail is advocated increasing demand in lifestyle and fashion domain, which shifts the consumers’ reputations. The increment in peoples’ living standards, urbanisation, shopping malls and social mobility has all increased fashion inclusivity to larger target audiences (Entwistle, 2000). As the lifestyle and trends shifts, so does the need to adopt flexible models that can quickly adapt to such variations.

The thriving of fast fashion retailer rests on the pedestal of situation analysis which identifies trends and respects them because they are the consumers ‘preferences. The organisations practising fashion ought to, therefore, refresh their respective inventories more periodically in the pursuit to control vast fashion demography (Fiore, and Kim, 2007).

The Strategy of the Fast Fashion Industry – Zara as the Case Study

According to Michael Porter, the strategy is defined based on three central tenets namely; creating strategic positions, creating a fit in organisational processes, and creating trade-offs. In view of Michael Porter, competitive strategy encompasses the ability to exhibit uniqueness, and intentionally choosing a different account of doing things to deliver a differentiated mix of utility. Zara Company has continuously demonstrated her unique values and prospects in finding opportunities and audience globally. It is by the little nature of her peculiarity that it has surpassed most her competitors, to rank position two as the world’s largest fashion industry (Huddleston et al., 2009).

The essence of strategy is thus to induce a valuable locus to propagate various activities which are unique from what the competitors are doing. This strategic position can arise in three ways; variety-based positioning, access-based positioning and finally needs-based positioning. Variety-based positioning occurs when the company intends to yield products with the help of different activities. Need-based positioning, on the other hand, seeks to produce products based on the various customers need in different situations. And finally, access based positioning arises when the customers’ needs are similar, but the way to address them is unique (Cheverton, 2005).

Potter (1996) presents traders as fundamental to strategy since they induce a choice and a purpose to limit that which the company produces. Trade-offs are revealed in three situations. First, they appear on the eve of inconsistency between the company’s reputation, and the magnitude of service value they offer. Secondly is from the inflexibility concerning the people and resources needed for various situations. And thirdly trade-offs ought to arise due to limitations within the internal management structure. Trade-offs thus play a vital in the determination of what the company ought to do and that which not to (Sundae, 2008).

Eventually, Porter exemplifies strategy as the induction of a fit between all the organisational processes. This fit seeks to better the operational efficiency of an enterprise while complication the capacity for competitors to duplicate them. When an organisation segment thrives, so does the other sections within the premise; and when one fails to yield performance, so does the others (Potter, 1996).

The SWOT Analysis for Zara

The SWOT analysis for Zara Company is pivotal in the understanding of its normative statue and prosperity globally (Böhm, 2009).

Strengths

Robust Supply Chain Management

Zara Corporation typically adopted a vertical integration model in its supply chain, which ensured a large part of production phases occurs in factories. Through this approach, Zara can easily follow market trends and respond to the necessary needs therein at a fast rate. Unlike most of her competitors, Zara only requires two to three weeks to design new goods, manufacture and avail them in stores.

In-house Production

The large percentages of Zara’s products are manufactured inside their factories. The company manages the design stage, production processes, dissemination and transportation of the finished goods. The in-house production is flexible enough to the quantity, frequency and variety of new products set to be launched.

Strategic Position

Zara stores are strategically situated along major cities where a population is high. Besides, the company’s marketing strategy is to accrue much money and invest in opening up stores in new cities.

Situation Awareness

The aspect which is so distinctive from her competitors (Zara) is her capacity to take cognisance of behavioural patterns and consumers tastes and preferences. The company is predictive about the flavours of people which it does right. Through the current sales information and customers ‘feedback, they get to master the trending fashion and styles that matter as per the time.

Affordable Prices Zara sells her excellent products and timely products at affordable prices, which thus attract more customers.

Dynamic Collections

Zara’s products for sale do change periodically based on current market trends. At the beginning of seasons, fifty to sixty per cent of the products are already ready, the rest being designs which done in due course in the middle of the season. By spotting new trends, the company swiftly adopt them and avail them into the market.

Weaknesses

Low Advertisement Capacity

Contrary to her competitors, Zara spends only 0.3% of her revenue in promoting here products. Instead, the company invests a lot in their stores and for expansion purposes.

Low Inventories

The company receives goods from factories two times a week and in small discharges as a way to minimise costs associated with many inventories. Additionally, the company constitutes of few quantities of differentiated products to sell in their stores. The customers run a shortage of what they initially wanted to purchase, because of such deficiencies, which thus makes the company lose such sales.

Inadequate Collaboration and Partnerships with Designers

In contrast with main rivals such as H&M Zara do not indulge in partnerships with resounding celebrities and designers in the area of fashion. The connections and collaborations are meant to arouse customers’ interests especially the young audiences into buying the goods.

Opportunities for Zara

Growth and Expansion of Online Market

The contemporary world is getting technologically bound with business issues, with only those able to embrace technology able to survive through the ordeals of competition and expenditure in traditional advertising. People of the current dispensation are shifting into online shopping, with brands adopting online marketing strategies. Zara can easily venture into this model to maximise her revenues (Sull, and Turconi, 2008).

The Growth of Fashion Domain

The fashion domain is currently growing at a supersonic pace. This, therefore, means there is a ready market for the products in the global market spectrum.

Threats

Competition

The fashion industry is an area of concern for many investors. Zara is constricted by the competitions imposed by the already established companies and the ones penetrating into the market. Zara is mainly challenged by H$M and Gap Inc with the latter being the world’s largest specialist clothing retailer.

The PESTLE Analysis for Zara

Besides the SWOT model, a STEEP model is equally critical in the understanding of the various environments and motivations inspiring the progression of Zara.

Social-cultural Aspect

Social factors surrounding a business venture possess significant impacts for its survival. According to Ailawadi, and Harlam (2002), the business cannot thrive in isolation from society. They ought to function according to social structures and fabrics on which the firm is founded. Brands that lose focus of social-cultural logistics are at risk of losing their mandate. Zara has taken into consideration of social doctrines governing their area of operation, and it does this through preliminary research to explore people attitudes, norms and philosophies.

Technological Aspects

Technology in the modern era is influencing how business is conducted, especially in transport and communication. Zara has been keen on making use of technology to yield high-profit margins. Technology in the context of Zara has rekindled her responsiveness. Besides, the company has partnered with Toyota in the application of Lean and JIT technologies in its production processes. Furthermore, technology has enabled Zara to respond to customers ‘demands faster and better (Lemos, 2013).

Environmental Aspect

Sustainable development has become a concept which the government advocates for in all sectors of the economy (Minton, 2018). Even as the production of services and goods takes place to satisfy human needs, there is a need to take into consideration environmental concerns. Companies are encouraged to harness green technologies in products which do not negatively deteriorate the environment. Zara factories are characterised with less water and energy expenditures. The company is yet focussed to induce their stress a 100% eco-efficient production by the end of 2020. Zara and Inditex have significantly invested in sustainable fabrics for clothing prepared from organic raw materials with the help of green technology (Ferdows et al., 2005).

Economic Aspect

In historical contexts, a country’s economy has been a critical tenet upon which the success of enterprises rests. Zara has a robust strategy characterised with affordable pricing which has seen it succeed. This strategy has enabled continuous selling even when the existing economic structure is constructive to the low-income earners. A country’s economic frameworks which support foreign investment have made it easy for Zara to penetrate. This is aided by the need to exchange goods and services, which also give birth to inter-state collaborations and partnerships; and mutual understandings (Piercy, and Giles, 1989).

Political Aspect

Zara’s outstanding sales in the UK have been boosted by the free trade agreements along the European Union market. The prevailing political arrangements either as a block or as an individual country provide for a stable foundation for business success or failure. The political understandings between Spain and the rest of the world ignited the advent of globalisation, and that has explained the spread of Zara to many global countries.

Legal Aspect

As the common doctrine has it, Law is everywhere and has to influence the business latitude. Zara’s philosophies are in aligning with ethics and existing legislative policies amidst her processes (Srdjevic, Bajcetic, and Srdjevic, 2012). The Company is well informed that there are sets of legal frameworks which ought to be followed. Zara also focussed in building ethical brand image, and thus a role model to many penetrating firms. Legal compliance is vital in the supply chain of any business venture. This ensures that the local norms and legislation are adhered to, and it turns to evade unnecessary collisions with the law of the land.

Political Aspect

The PESTLE analysis as similar to the STEEP model is a demonstration of how the six parameters affect the business enterprise. From social-cultural to technological, environmental economic, political and legal; all these tenets are fundamental areas that ought to be granted attention by all business ventures. Literature and practice have demonstrated time without number the company’s commitment to the said tenets. Besides, her affordable pricing logistic has significantly shared truncation in permeating through the constrictive and unsupportive economic hostilities (Ho, 2014). This analysis has provided a vivid impression of what Zara does to and why it ought to invest in most of the said tenets.

Conclusion

As discussed in this essay, Zara has penetrated the global market especially with the provisions from globalisation. The case study is living proof of how informed leadership influence the success of busies enterprises. Additionally, the essence of communication and preliminary studies contribute to successful business thrive. The essay did present the concepts and practices by Zara that has spearheaded its prosperity in the realm of fashion and design. The challenges and threats for Zara also induce an urgency of the need to work towards alleviating them, while maximising the existing opportunities and strengths. This essay maintains a view that the case study can be educative in emancipative on that which is necessary for business enterprise ventures.

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